Archive for September, 2008

The week of September 15 was nothing short of incredible for the stock market and the banking industry in this country. The week ahead will most likely be just as much of a roller coaster as more news pours in from all angles of the market.

So far the stories that will affect stocks on Monday include the $700 Billion government bailout proposed by the Bush administration to buy up all the bad mortgage debt that has accumulated under the exuberance of the lending industry during the housing bubble. This is one perfect example of where government regulation and oversight would have saved the taxpayers and investors of these companies a lot of emotional and financial pain. Because of the lenders offering absolutely insane loan terms to people with poor credit, undocumented and insufficient income we are in this mess and every homeowner in the country is feeling the effect. Would home prices have risen as much if lending standards stuck close to the previous requirements of 20% down? Absolutely not. But would we have this near trillion dollar government bailout, foreclosure crisis and bankruptcy explosion… probably not.

The government is also allowing the nation’s only two remaining major investment banks Goldman Sachs and Morgan Stanley to change their legal status allowing them to accept consumer deposits to help shore up their balance sheets and avoid insolvency. This will also allow these companies to tap the Federal Reserve for loans at the lowest rates.


The SEC is banning short selling of shares in the nation’s banks and financial institutions. The irony here is that the short sellers were right all along that this house of cards would collapse and they are now being punished for that. I have to say that is pretty shady intervention by the government, especially when many of these shorts were most likely margin-called in the morning when shares of many large banks surged 20% on the news. High short interest in a stock is very likely an indicator of trouble to come, because of business fundamentals and not directly because of the shares being shorted as is being implied by the ban.

It’s appalling to witness this event and begs the question as to how did it get this out of hand in the first place? 12 federally insured banks have failed. Millions of homeowners have lost their homes. Millions more are bankrupt and Billions of dollars have been lost by investors in the financial sector. We can do all the finger pointing we want, but, in general, the industry and government caused this problem and all of us as taxpayers are paying for it. Those people who own a home are getting hit twice and those owning stock in the affected companies are getting a triple whammy.

To top it off, it’s disgusting how our politicians in Congress, and President, are jockying for the limelight in pushing the bailout package as if to take credit for something that makes us look like a failure to the rest of the world.

That’s my take, what’s yours?

Technorati Tags: bailout, federal reserve, banks, goldman sachs, morgan stanley, shaun carter, president bush, congress, mortgage, banking, stock market, investing

On Monday, the Dow Jones Industrial Average plummeted over 500 points because of the failure of Lehman Brothers, severe cash troubles at AIG and an announcement that Bank of America is buying Merrill Lynch. The Federal Reserve is feverishly pumping $50 Billion into the system to help these companies find the financing they need to keep afloat.

The events that are unfolding are truly remarkable and it just goes to show how shortsighted the majority of these corporations were in the unfolding of the real estate bubble. Unfortunately, their missteps are causing a ripple effect across the entire country and world economy for that matter.

The Federal Reserve is set to meet today to determine if an interest rate cut is necessary. Given the recent events, many analysts are calling for and/or predicting a cut of 25-50 basis points, but I find this to be a very unlikely scenario. The Fed has warned time and again that the economy is sound (how they get to that conclusion is beyond me) and that inflation is a prime concern and lowering of the fed funds rate would only fuel inflationary pressures. We’ll just have to wait and see what they do.

Technorati Tags: wall street, stock market, bank of america, merrill lynch, interest rates, federal reserve, shaun carter, lehman brothers, aig, dow jones, economy